Category Archives: LBO

EBITDA adjustments, or add-backs, have been a hot topic in the global leveraged loan and high yield bond markets over the past few years as private equity shops undertaking large M&A deals increasingly rely on this technique for financing.

Of course, these adjustments – where a PE shop or acquiring entity can add an expense back to profits, significantly improving a transaction’s pro forma numbers – are not without controversy. Debt investors complain vociferously that, via add-backs, actual risk is being masked, as borrower leverage down the road will be understated if the rosy earnings numbers detailed now don’t actually come to pass.

The largest portion of these add-backs comprises synergies, or the potential financial costs savings of combining two companies.

But just how much risk do these adjustments/synergies add? If a transaction’s debt/EBITDA ratio has crept higher based on adjusted EBITDA alone, how much riskier are these deals if EBITDA adjustments are stripped out?

A significant amount, apparently, when looking at the more aggressive deals in market, and when considering synergies. For example, a relatively slim 8% of U.S. leveraged loans backing M&A had pro forma debt/EBITDA of 7x or higher this year, including synergies, up from 5% last year and on par with 2014. While this metric has risen in recent years, it remains far below the 2007 record of 17%.

Assuming, however, that expected synergies are not achieved, the share of M&A transactions levered at 7x or higher jumps to 17% this year, up from 14% in 2017 and just a few percentage points below the 2007 record of 19%. – Marina Lukatsky

This story is part of a longer piece of analysis, available to LCD News subscribers, from LCD that details add-backs/EBITDA adjustments in detail.

LCD comps is an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.

Thanks to a spate of big-ticket deals in September, leveraged buyouts in the U.S. are larger now than at any time since the financial crisis.

During the third quarter the average size of an LBO transaction hit $1.8 billion, according to LCD. That’s up from $1.375 billion during the same period a year ago and is near the record $2 billion average in 2007, at the height of the last credit cycle.

Boosting the 3Q18 numbers are some jumbo LBOs, two of which entail large cross-border leveraged loan components. Chief here is the $17 billion majority buyout of Thomson Reuters’s Financial & Risk unit, now called Refinitiv (link, plus a list of the largest leveraged financings of all time). As well, Carlyle and GIC recently closed financing on their $11.7 billion LBO of Akzo Nobel Specialty Chemicals.

LCD comps is an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.

Included in the webinar: Transaction activity has always been impacted by numerous outside factors. Recent complications include Brexit, trade wars, and tariffs. With numerous potential influences, what is the current state of the market, based on these latest trends?

Join S&P Global Market Intelligence for a complimentary webinar, where industry experts share their insights while focusing on the M&A, Debt, and Private Equity transactional markets.

Analyzing recent global M&A volumes and factors driving activity. What is the outlook of M&A deals for the US?

Debt markets and LBO activity: What is the current state of the market?

Deep dive into private equity including buy and sell-side conditions and strategies

LCD comps is an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.

While leveraged loan issuance in the U.S. slowed in 2018’s third quarter, LBO activity surged, thanks to huge credits backing Refinitiv, Akzo Nobel, and Envision Healthcare.

These three deals comprise nearly 40% of all LBO loan activity over the past three months. The remaining $30 billion is not exactly small potatoes. In total, LBO activity in the third quarter hit $48.3 billion, a record, according to LCD. – Staff reports

LCD comps is an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.

Web.com Group completed the covenant-lite term loan financing for its buyout via a Morgan Stanley–led arranger group, according to sources. The $1.095 billion first-lien term loan due 2025 (L+375, 0% LIBOR floor) priced at an OID of 99.75, and the $420 million second-lien term loan due 2026 (L+775, 0% floor) came at 99.25. Both priced tight to talk, and the first-lien was increased by $15 million to replace revolver draws. Financing also includes a $100 million, five-year revolver with a springing leverage covenant. Proceeds are being used to finance the take-private buyout of the company by Siris Capital in a roughly $2 billion deal. Web.com Group is a global provider of internet services and online-marketing services for small and midsize businesses. Terms:

With the global surge in mergers and acquisition activity so far in 2018, M&A has been a big driver of leveraged loan activity. This is especially true in Europe, where M&A accounts for nearly three-quarters of all leveraged loan issuance, according to LCD.

LCD comps is an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.

Private equity–backed companies looking to grow through acquisitions have been an active lot in the U.S. leveraged loan market this year.

Institutional loan issuance backing sponsored add-ons that fund M&A has surged to an all-time high for the first five months of 2018 (this data includes all deals launched through June 5).

At $38.6 billion, this add-on volume is 44% higher than the comparable YTD total in 2017, which itself represented the previous peak during this observation period. Despite the year-over year rise, it’s worth noting that the full-year 2017 total was a record $64.4 billion of sponsored add-on issuance, 58% of which was booked between June and December.

In addition to high LBO supply, escalating purchase price multiples are another reason for rising add-on M&A. PE firms are increasingly focused on growing existing portfolio companies via synergistic tuck-in acquisitions that can help reduce the average cost of a transaction over time. – Jon Hemingway

LCD comps is an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.

Strong demand from collateral loan obligations helped European loans work through a generally volatile May to post strong new-issue volumes.

M&A was the clear driver for European loans in May, providing €8.5 billion (when including LBO and other related deals) out of a total new-issue volume of €10.5 billion, according to LCD. This meant M&A was responsible for roughly 81% of deals last month, following a not-too-dissimilar share in April (when acquisition-linked loans brought a nearly 90% of supply).

This M&A-led market is certainly what investors had been asking for at the start of the year, having been through several refinancing spikes over the previous 18 months or so. These deals had helped keep reported volumes high, but did not always help those players looking to add assets or maintain returns.

Year to date, leveraged loan issuance in Europe targeted for institutional investors totals €41 billion, on par with activity at this point last year. – David Cox

LCD comps is an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.

M&A activity is driving issuance in the European leveraged loan segment so far in 2018.

So far this year there have been €8 billion in loans backing leveraged buyouts launched to the syndications market, along with €9 billion supporting other M&A. That total, €17 billion, makes up the lion’s share of the €27.4 billion in overall issuance, according to LCD.

And although the market has clearly seen the return of big deals, such as those for ProSieben (€7.3 billion), Wind Telecomunicazioni (€7.2 billion), and TDC A/S (€7.2 billion), M&A-related volume is not only comprised of the headline transactions.

Indeed, this year has seen a steady stream of smaller-scale buyout and acquisitions, along with secondary buyouts. These include the buyouts of Flamingo with a term loan of €280 million, the €195 million TLB backing Cinven’s buyout of Planasa, and Equistone Partners’ sale of E. Winkemann to Cathay Capital Private Equity.

Buy and build has also been a feature of the market, with Nordic Capital’s acquisition of three dental chains in the Netherlands, Switzerland, and Germany, and the €375 million total financing backing Ardian’s buyouts of Spanish bread and bakery companies Berlys and Bellsola. – Taron Wade

LCD comps is an offering ofS&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCDhere.

The share of LBO loans with debt/EBITDA of at least six times – a level specified by Federal agencies in 2013 as meriting “special concern” – has just reached its highest point since the financial crisis, according to LCD.

The surge in these deals comes amid sustained institutional investor demand for higher-yielding assets. Consequently, lenders and investors have been accommodating to leveraged loan issuers of all stripes over the past few years, doling out covenant-lite credits and rapid repricings in record fashion.

Leveraged lending guidelines for U.S. banks, laid out by Federal agencies in 2013, have returned to the headlines of late, most recently when Comptroller of the Currently Joseph Otting said that banks “have the right to do what [they] want” regarding leveraged lending (as long as those actions don’t impact “safety and soundness,” that is).

Those guidelines stated that loans with debt to EBITDA of six times or more would merit special concern, prompting banks under the watchful eye of the Fed to pull in the reins on highly leveraged deals.

To a degree, anyway. Turns out, leverage on loans backing U.S. LBOs have been creeping higher over the past several years, to the point where roughly 53% of LBOs for large corporate borrowers had pro forma leverage of 6x or higher so far this year, a post-crisis high (2014 came close, at 52%). For reference, 2007 continues to hold the record, when 61% of buyouts fell into this category. – Tim Cross

LCD comps is an offering ofS&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCDhere.